Re: Stiglitz on Soros

["Edward Nell" <nelle@xxxxxxxxxxxxx>]

True enough - but countries like Australia should be developing their
policy position to ensure independence, rather than just giving up and
saying it can't be done.

--speculative currency inflows and outflows can be inhibited by
transactions taxes and various other kinds of penalties - keeping
currency in the country can be rewarded

--transfer pricing can likewise be penalized

--the IMF and World Bank can be resisted - of course it is dangerous,
but small countries facing possible IMF pressure should band together,
pledge to support one another,an d to jointly resist draconic IMF
programs.

--if you are forced to 'open' your markets, think about how to do it.
There are lots of ways to indirectly impose costs on imports and protect
the domestic markets - the Japanese are masters of the art.

What is needed above all is political will - and this depends on many
things - but one factor is well-informed economists pointing out that
you don't have to give up.  If the only thing politicians hear is that
nothing can be done, nothing will be done.


>>> Geoff Edwards <g.edwards@xxxxxxxxxxxxxxxxx> 05/14/02 11:59 AM >>>
Leigh

This line of reasoning seems rather too clinical to describe real world
economies. Countries do not have the implied level of independent
control
over their fortunes.

Certainly some countries (like Australia) have deliberately put in place

the policies (unilateral removal of restrictions on trade and foreign
investment) that have been followed by massive current account deficits.

But consider the following circumstances which can have the same result
outside a country's deliberate control:

* massive devaluation caused by speculative wihdrawal of currency;
* transfer pricing by corporations;
* IMF or World Bank conditions of financial support which force
countries
to shrink their infrastructure or open their markets to imports;
* aggression by trading partners who demand that the subject country's
markets be opened but protect their own.

With a chorus of major international bodies proclaiming the current
economic orthodoxy that "free trade" is the way to prosperity, and using

their financial and political clout to force these policies onto the
rest
of the world, what hope do well-meaning politicians of the average
smaller
country have of running an independent macro policy?


Regards


Geoff Edwards
PhD Student
Griffith University
Brisbane, Australia

-----Original Message-----
From:	Leigh Harkness [SMTP:Leigh@xxxxxxxxxxxxxxxxxxxx]
Sent:	Monday, May 13, 2002 10:39 PM
To:	mosler@xxxxxxxx; Paul Davidson
Cc:	pkt@xxxxxxxxxxxxxxxx
Subject:	Re: Stiglitz on Soros

Paul

You wrote:

> Since both the creditor and the debtor are responsible for the
imbalance
in
> the international  current account payments, then both have a
> responsibility for solving the problem -- but the creditor nation has
the
> wherewithal to solve the problem  --and so it has the major
responsibility
> for resolving the problem.

When you are managing an economy, you try to balance international
current
payments.  You definitely don't want a huge currently deficit.  Neither
is
it worthwhile generating a huge current account surplus, unless your
people
and businesses  wish to build up savings overseas.  For example,
Japanese
people and businesses may wish to build up savings overseas, so a sound
policy position may generate current account surpluses for that economy.
(That is not to say that this is the reason for the current account
surpluses of Japan.)

While one can manage ones own economy to generate a current account
deficit
or surplus, I doubt if one can achieve a similar results for ones own
economy by manging the economy of every other country.  If the forces
that
would have generated a current account deficit cannot be relieved
through a
current account deficit, then they must be relieved in some other way,
such
as hyper inflation.

For example, lets say two countries, A and B have expansionary policies
in
place that cause excess demand.  In the case of country A, it has a good
credit rating and the rest of the world is prepared to lend to it.  It
experiences current account deficits.

Country B, on the other hand, does not have a good international credit
rating.  It cannot go into debt internationally to pay for goods to meet

the
excess demand in its economy.  As a result, it has a shortage of goods
relative to the money trying to buy goods and so experiences hyper
inflation; but no current account deficit.

Are the "other countries" irresponsible for lending to country A?
Have
they contributed to its current account deficit?

Also, are the "other countries" acting responsibly when they don't lend
to
country B?  They have saved country B from a current account deficit.

The current account deficit is a symptom of an economic problem.  That
problem is caused directly by macro-economic policies (government fiscal
deficits are not a necessary nor sufficient cause of current account
deficits).  The problem can be solved directly by macro-economic
policies.
The country that has the problem is responsible for that problem.  No
amount
of action by other countries to treat the symptoms of that problem can
address the cause of that problem.


Leigh














s in place policies that would cause